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Risk Analysis and Countermeasures of Investment and Management in India under the New Situation

Date:2021-02-08  Hits:85

Since the occurrence of the conflict in the Lewan Valley between China and India on June 15, 2020, India has continuously adopted restrictions on Chinese companies’ investment in India, removed hundreds of Chinese Internet applications, revised power equipment import policies, postponed customs clearance of Chinese goods at ports, A series of radical measures such as raising import tariffs and restricting bidding by Chinese companies have further deteriorated the investment environment in India. This article attempts to analyze the risks of investment and operation in India under the new situation from the perspective of Chinese-funded enterprises and put forward countermeasures.

Recent changes in Indian laws and policies

1. Changes in foreign investment policies

On April 17, 2020, India promulgated the "Relevant Foreign Direct Investment Review Policy for Opportunistic Acquisitions/M&A of Indian Companies During the COVID-19 Epidemic Period" (hereinafter referred to as the "Indian FDI New Deal"). India’s new FDI policy took effect on April 22, and its main content is: non-resident companies can invest in India except for industries or investment behaviors that are prohibited by India’s FDI policy. However, business entities in countries bordering India, or the ultimate beneficiaries/owners of investments in India who are residents of the aforementioned countries or companies located in that country, can only invest according to the path of the Indian government. Direct or indirect transfer of the owner’s equity of an existing Indian company in India, or a foreign investor’s investment in India in the future, resulting in the ultimate beneficiary/owner falling within the above range, the change of the ultimate beneficiary/owner shall also be obtained from India Government approval.

The countries bordering India include China, Pakistan, Nepal, Bangladesh, Bhutan, and Myanmar. Judging from the actual situation of FDI investment in India and the FDI investment capacity of the above-mentioned countries, this policy obviously has a strong influence on Chinese investors. Targeted.

2. Changes in power equipment import policy

On July 2, 2020, the Ministry of Electricity of India issued a decree stating that the power supply system is a sensitive and important infrastructure. Any threat to the power supply system will have disastrous consequences and may paralyze the entire country. The security vulnerabilities of the power system and network are mainly carried out by implanting malicious software and Trojan horse programs in imported equipment. Therefore, protecting the safety, integrity and reliability of the power supply system and the national grid has important strategic significance. The decree requires that all electrical equipment or parts imported from a pre-reference country (defined by the Indian Ministry of the Interior, and the scope is adjusted from time to time) must be approved by the Indian government in advance. The approved equipment must be tested in a laboratory designated by the Ministry of Electricity test. Although from the current documents published by the Indian government, it is not clear that China belongs to the pre-reference country defined by the Indian Ministry of Interior. However, after the promulgation of the above-mentioned government decree, Indian Minister of Electricity Singh strongly declared that the Indian government has decided not to allow any (electric) equipment to be imported from China and Pakistan because there may be malware or Trojan horses, which can be activated remotely. Paralyzed the Indian power system. importing power equipment and components from China requires mandatory pre-approval. India’s recent government decree is a step in this direction, with the purpose of preventing imports from pre-reference countries (mainly China).

In communicating with some Indian project owners, I learned that the Indian Ministry of Electricity’s decree on July 2 to restrict the import of electrical equipment, the owner also learned after its promulgation, because the decree lacks specific operational requirements and details, the owner also needs Contact relevant departments and implement specific operational details and requirements. However, from the perspective of the text of the law, it is clearly applicable to imported end-uses or any items used as components, including any equipment used or to be used in the manufacturing and installation of power supply systems, or any direct or indirect connection with power supply. System-related activities.

3. Other policy changes

In addition to the above policy changes, after the Sino-Indian border conflict, India introduced new regulations for Chinese imports, implemented 100% inspections on goods from China, delayed customs clearance of Chinese goods at ports, and increased import tariffs. On July 1, the Ministry of Roads, Transport and Transportation of India also announced that it would prohibit any Chinese company or joint venture with a Chinese company from participating in road construction projects.

According to reports, the Ministry of Commerce and Industry of India has been pushing for rapid revision of the "Customs Law" and required the Ministry of Finance to issue strict regulations on rules of origin and authorize customs staff to verify abuses of free trade agreements. The report mentioned that the Indian government has added a new chapter on the management of rules of origin under trade agreements in the "Customs Law." According to the new rules, importers cannot enjoy preferential treatment simply by providing a certificate of origin. People familiar with the matter said that the notice about the new rules has been issued.

Risk Analysis of Investment and Operation in India under the New Situation

1. The review has become stricter, and government-backed projects are facing the risk of forcible termination of contracts

At present, China-India relations are in a sensitive period. The Indian government has successively introduced a series of policies and measures that violate the relevant WTO rules to restrict Chinese investment and product imports. These policies are issued with a heavier political background and there is more room for subsequent implementation. , Which is highly targeted to Chinese companies and is obviously unfavorable. It is known that the desulfurization projects of railways, subways, and power stations constructed by many Chinese companies with the background of the Indian central or local government have been forcibly terminated by the Indian side. It can be predicted that for a long period of time in the future, the Indian government will adopt a stricter review policy on investment from China and the import of power equipment. Some government-backed projects that have won bids by Chinese-funded companies may be forced to terminate their contracts or face greater The risk of contract cancellation, the investment and business environment of the Indian market has a deteriorating trend for Chinese companies.

2. It is more difficult to issue bank guarantees, and the risk of owners requesting the guarantees increases

In view of the current realities of China-India relations, both Chinese and Indian banks are more cautious and stricter in reviewing business risk in the process of developing the Indian project bank guarantee business. In addition, Indian banks are currently implementing the Supreme Court of India's case. The counter-guarantee letter is required to have a claim period of at least 12 months, and the difficulty of issuing bank guarantees has increased, which is disadvantageous for Chinese companies to continue bidding for Indian engineering projects. India generally requires the use of independent guarantees in engineering contracting contracts, and Indian law is applicable. In principle, only guarantees issued or reissued by local banks are accepted, and local owners generally take the initiative, especially for those issued by local governments as beneficiaries. The guarantee is stricter. India’s letter of guarantee must be governed by the Indian Contract Law promulgated in 1872, and the bank guarantee must also comply with the bank guarantee and commitment business regulations issued by the Central Bank of India. The Central Bank of India requires the guarantee bank to pay immediately after receiving the beneficiary’s claim. It shall not delay due to the need to seek legal advice or wait for the approval of the superior bank. It shall not be affected by any basic commercial contract disputes, unless it can be proved that the beneficiary has fraud or a letter of guarantee Repayment will cause irreparable losses. Indian courts rarely issue temporary injunctions under guarantees, and even believe that the courts should not be involved in guarantee disputes. Even if there is a dispute over the underlying contract, it can only be paid under the guarantee and then litigation. In the case that the contract has not been terminated, taking into account the recent new policies introduced by India, in order to maximize the interests of the owner, the owner abuses the right of payment request, and the risk of fraudulently claiming the contractor's independent guarantee is increased.

3. Indian laws and policies are scattered and complicated, and legal rights protection costs are high

As a federal country, each state enjoys relatively independent legislative powers and administrative approval powers in terms of environmental protection, land and other internal affairs, and there are large differences in laws and policies between states. Therefore, investment and operation in India are required Consider laws and policies at both the federal and local levels. India's legal system for protecting foreign investment is not sound, and it is difficult to find reasonable channels for rights protection once commercial disputes arise. For a long time, India’s cumbersome litigation procedures, numerous backlogs, and time-consuming judicial status have not changed. The first instance procedures of ordinary civil and commercial cases have been more common after 3-5 years, and some cases often go back and forth between courts at all levels due to procedural or substantive issues. The second is more common. In India, the time cost and economic cost of maintaining the legitimate rights and interests of enterprises through legal procedures are relatively high. In the current sensitive period of Sino-Indian relations, the anti-China sentiment of Indian officials and people has penetrated more or less into the Indian judicial system, and it is expected that the handling of stock cases in India will have a certain negative impact.

4. The Sino-Indian bilateral investment protection agreement is terminated, and international relief channels are limited

The China-India Bilateral Investment Agreement (BIT) was terminated on October 3, 2018. Although in accordance with Article 16(2) of the BIT, for investments made or obtained before the termination date, the China-India BIT will continue to apply for 15 years from the date of termination. For example, if a Chinese investor made a greenfield investment in India before September 2018 or an investment formed by the acquisition of an Indian company, if the Chinese investor violated fair and equitable treatment, most-favored-nation treatment, or national treatment because of the expropriation by the Indian government or According to the provisions of the China-India BIT, after exhausting local remedies in India, it is possible to consider seeking international relief according to the dispute resolution method specified in Article 9 of the China-India BIT. The possible means include friendly negotiation, and it can also be agreed upon by both parties. Submit to international mediation or ICSID arbitration. However, the time-consuming and economic costs of international remedies are relatively high, and international investment arbitration also has pre-procedure restrictions. In addition, because Chinese-funded enterprises may set up different investment structures when investing in India and involve different BITs, specific issues need to be analyzed in detail, so international relief approaches have great limitations. 

Chinese-funded enterprises' next steps

1. Strengthen legal risk awareness and timely adjust investment and business strategies in India

Under the current circumstances, it is recommended that Chinese-funded enterprises be cautious in their plans for new investment in India, and be cautious in carrying out investment and M&A activities in Indian companies. For a period of time in the future, one should take a wait-and-see attitude towards investing and operating in India, and pay close attention to changes in Indian official policies, especially changes in Indian power equipment imports, tariff adjustments, and safety reviews. At present, Chinese-funded enterprises should further strengthen their awareness of legal risks and pay close attention to the possible impact of changes in Indian official policies on projects under construction and closing projects in India. Firmly establish risk awareness and bottom line awareness, timely adjust investment and business strategies in India, and prudently bid for and undertake new projects in India, especially power plant projects or power plant desulfurization projects with the background of the Indian central or local government.

2. Strictly abide by local laws and carry out investment and business activities in compliance with laws and regulations

Under the current situation, Chinese-funded enterprises should firmly establish awareness of legal compliance, strictly abide by Indian local laws and regulations, strictly abide by Indian labor law, tax law, company law and other legal regulations in terms of employment, taxation, and operation, and carry out investment operations in compliance with laws and regulations. Activities to avoid violations of laws and regulations during sensitive periods, avoid becoming the focus of media attention, triggering news events, and ensuring the safety of personnel and assets.

3. Actively resolve disputes through consultation

based on the experience of implementing projects in India, combined with the reality of the current Sino-Indian relations, it is recommended that Chinese-funded enterprises now firmly establish risk awareness for Indian bidding projects, move forward, and carry out risk identification and assessment work; projects under construction are implemented with integrity and strive to improve Ability to fulfill contracts and actively promote project implementation; for projects that have disputes, analyze the positions of both parties objectively and rationally, make scientific and timely decisions, seize the golden window period for disposal opportunities, and actively resolve major disputes and differences through consultation during the execution of the project , Gradually resolve the existing risks and quickly close the project.

4. Establish a special major risk response team

once a Chinese-funded enterprise encounters major risk events such as contract termination and guarantees, it should promptly cooperate with relevant internal departments of the company and external professional institutions such as law firms proficient in Indian law or international arbitration to form a special major risk response team to discuss and respond Plan to minimize related impacts and losses as much as possible.

(Source: Official Website of Linyi Council for the Promotion of International Trade)

 
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